Why Nokia is losing the smartphone game

Get Ahead reader Ismail A Muhsin analyses why Nokia is losing out to other rivals in the smartphone market in response to our reader invite (below). However, he believes that the Finnish giant has the potential to outsmart competition.

Ismail is pursuing his MBA from a premier management institute after two years of experience in telecom R & D. He is an ardent follower of upcoming trends in emerging technologies and businesses.

We don't see this as a threat. We are the ones with real phones, real phone platforms and a wealth of volume built up over years."

That was the reaction from Nokia four years ago, Google's Open Handset Alliance was kickstarted the Android revolution. At that time, this is exactly what anyone with the kind of dominance that Nokia had, would have said about a bunch of people coming together to build yet another mobile platform.

Nokia was amongst the world's top brands and was considered as the BMW or Mercedes of phones. Competitors were at a distant, while Nokia had a market share of more than 50%, the nearest second runner had a market share of less than half of what Nokia.

Unfortunately, the above reaction exactly depicts the attitude that set the tone for the descent of Nokia. Nokia did see threats from those real ones like iPhone and Blackberry that existed at that time but not from those that didn't even exist.

Being a frontrunner, for Nokia it was difficult to look back and see the distant upcoming platform threats, changing consumer preferences, technological advances in mobile processors that were shaping up the industry.

As I proceed to discuss about this giants decline, just as a word of caution, I have to remind that Nokia still is the largest seller of handsets in the world, and even today every third mobile phone being sold in the world is a Nokia.

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Let's start from the Nokia philosophy: Connecting People. When you look at it now, you say, "Isn't it just what mobiles are supposed to d?" But we should indeed praise Nokia in sticking to this motto.

Their strategy was to design mobile phones across all ranges right from basic phone to the smartphone ranges that they had -- enabling the entire spectrum to keep 'connecting to people'. They did not see beyond that.

Having to address this vast segment of portfolio would mean developing different platforms including basic phone software, series 40, Symbian and Windows CE devices.

They had to incur the cost of developing, maintaining, testing all these ranges of phones. They had to invest in R&D for designing and developing each of these phones and their strategy lied in generating enough volumes in each of them to fetch enough profit.

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The problem with such vastness in product portfolio didn't end there. Each operator commanded changes in the software of the device. For example: Orange wanted Nokia to block the VOIP feature in their phones. The handset maker was not making the rules. Updates and fixes for each of these handsets was again a nightmare.

And we haven't even started talking about the manufacturing set up, managing the inventory logistics, having to customise each handset to all different operators, marketing efforts and post purchase service network for each of them.

The margins can only be justified at high volumes. With their declining market share, no wonder Nokia is under profit pressure. Another biggest selling point of Nokia was its reliability and quality even amongst the lowest range phones. As the mobile market exploded with the advent of cheap Chinese phones, mobiles were no longer being considered long lasting items and stopped being carried around safely wrapped with outer covers.

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Mobile phones started becoming impulse purchases, which were being changed almost each year. Samsung which did not stand comparable to Nokia in terms of build quality capitalised on this trend and started bringing out a variety of cheap models at reasonable price. Their churn out of newer models was much faster compared to Nokia. Nokia could justify their very long launch time for new products to things like extensive testing which were no longer required by the market.

At all the above instances we see that Nokia rode on their No.1 tag all along and failed to see the changing trend and consumer perceptions. Let alone create and define new trends. Which was exactly what Apple was doing at that time.

Think Different -- that's what apple stood for and still stands by.

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Any technology leader can sustain only if it focuses on continuously coming up with disruptive product ideas. And not just going by adapting to changing consumer trends. The products that they launched simply looked ahead of their time.

For instance the tablet they introduced created a new space which did not exist before. Everyone else in tablet space is only playing catch up to Apple.

The tablet trend that Apple started is already denting the PC industry. Coming back to their phones, they were 'different' not only in terms of product innovation but also in their idea to launch just one phone instead of a slew of devices like Nokia or Samsung.

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Dealing with just a single model would mean very little overhead in terms of design, software, maintenance, manufacturing, marketing efforts and service support. Their segment was also clear -- the most profitable of all, the smartphone segment. They were the game changers and they made the rules.

Carriers didn't have much say and Apple would not have to change its software or customise for each operator. Their philosophy was simple: Mass produce a single model and sell them like hot cakes.

Apple's spending in R & D was just 4% of its revenues which is much lower than Sony (8%) or Microsoft (17%).

On the face it, it is a very humble number for the biggest technology company in the world. But Apple's 'R & D spend per product' is almost 8 times that of others like Sony or Samsung as they have a variety of products to spend their budget on.

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Unlike the Finnish giant Nokia, they had an excellent English speaking CEO Jobs, who was an extraordinary marketer. The Apple store in itself was an excellent innovation in itself.

In contrast to the other electronics shop that had racks of gadgets stuffed like a grocery shop, Apple experience was unique with simple spacious interiors, beautiful lighting showcasing only a few products.

Limited number of stores enables Apple to strictly monitor the experience and also increase the scarcity of the Apple brand. A recent study on Apple's retail strategy tells that Apple had extensive training on the way the store employees interact with customers, scripted manuals for on-site support and tight controls on store details right down to even the pre-loaded content like Nokia or exclusive showrooms of other brands.

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To rule out any player straightaway in these extraordinary times would be a cardinal sin. While Android essentially has achieved its objective of spreading the access to Google services to every conceivable device, it has essentially commoditised the handset industry with handset makers like Samsung or HTC and Motorola competing on thin margins.

Apple is already dominating the space and is now focusing on increasing the stickiness to Apple devices bringing out service like iCloud. Windows Phone hopes to be a game changer in this party and Nokia could just again get back as a strong contender in the smartphone category.

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Two turkeys do not make an Eagle' was the tweet by a Google VP when Nokia decided to partner with Microsoft for producing Windows phones. Nokia's current CEO Stephen Elop's response was this: Two bicycle makers from Dayton, Ohio, one day decided to fly.

Nokia needs just this kind of expressive leaders to revitalise its stable and come out hard. It will be interesting time ahead indeed.

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